German Business Confidence Gains Third Consecutive Month

SAP AG, the biggest maker of business-management software, this week forecast a gain of at least 12 percent in full-year earnings, pushing up its share price. Photographer: Ralph Orlowski/Bloomberg

Jan. 25 (Bloomberg) -- German business confidence rose more
than economists forecast in January, adding to signs that
Europe’s largest economy is recovering from a slump at the end
of last year.

The Ifo institute’s business climate index, based on a
survey of 7,000 executives, climbed to 104.2 from 102.4 in
December. That’s the highest since June and the third straight
gain. Sentiment dropped to a 2 1/2 year low in October.
Economists predicted an increase to 103, according to the median
of 41 forecasts in a Bloomberg News survey.

The Bundesbank said this week there are indications that
the economy is already rebounding from a contraction in the
final quarter of 2012, even as the sovereign debt crisis curbs
demand in Germany’s euro-area trading partners. Investor
confidence jumped to the highest since May 2010 this month and a
gauge of activity in service industries rose to a 19-month high.

“Today’s Ifo index nicely illustrates the green shoots in
the German economy,” said Carsten Brzeski, an economist at ING
Group in Brussels. “Even if the current harsh winter weather
delays the blossoming somewhat, growth should return, leaving
the contraction of the fourth quarter quickly behind.”

Ifo’s gauge of executives’ expectations rose to 100.5 from
98, while a measure of the current situation increased to 108
from 107.1. The euro advanced after the report and traded at
$1.3430 at 10:13 a.m. in Frankfurt, up 0.4 percent today.

Economic Slowdown

German growth slowed to 0.7 percent in 2012 from 3 percent
in 2011, the Federal Statistics Office said last week. It
estimates gross domestic product may have dropped as much as 0.5
percent in the fourth quarter from the third.

While the government forecasts expansion of just 0.4
percent in 2013, the country’s DSGV savings banks association
yesterday struck a more optimistic note. Germany’s small and
medium-sized companies, which generate about half its GDP, will
increase investment this year and growth should be stronger than
some predict, DSGV President Georg Fahrenschon said.

SAP AG, the biggest maker of business-management software,
this week forecast a gain of at least 12 percent in full-year
earnings, pushing up its share price.

The benchmark DAX stock index has rallied about 17 percent
since European Central Bank President Mario Draghi pledged on
July 26 to do whatever is needed to preserve the euro. Draghi
said this week that the “darkest clouds” of the crisis have
lifted.

‘Crisis Mode’

Still, with the 17-nation euro area in its second recession
in four years, the debt crisis is “far from over,” German
Chancellor Angela Merkel said in her New Year’s speech.

Belgian business confidence, which some economists consider
a bellwether for the euro area, unexpectedly fell in January for
the first time in three months, the National Bank of Belgium
said yesterday.

The euro economy probably stagnated in the first quarter
after a 0.4 percent contraction in the previous three months,
according to the median of 26 economists’ forecasts in another
Bloomberg survey. It shrank 0.1 percent in the third quarter of
2012 and 0.2 percent in the second.

Germany exports about 40 percent of its products to the
euro region.

Robert Bosch GmbH, the world’s biggest car-parts maker,
said on Jan. 23 it will hold back on investments this year as
the recession in Europe caused profitability in 2012 to miss
targets.

“It is true that the risk of a euro-area break up has been
contained and that we may see a recovery at some point,” said
Andreas Moeller, an analyst at WGZ Bank in Dusseldorf. “But
this may take a long time. For now, Europe’s economy is still in
crisis mode.”